Becoming a franchisor is similar to going into an entirely new business — one that requires its own set of skills and comes with its own body of regulations.
Because franchising a business can be a daunting and unfamiliar prospect, new franchisors may be tempted to outsource their franchise sales. The market can be difficult for a newcomer to penetrate, and sales are intricately regulated. So outsourcing can make sense.
However, that doesn’t mean every franchisor should take this route. Before you make a decision, it’s important that you consider the pros and cons of outsourcing franchise sales.
Options for Outsourcing Franchise Sales
Not all vendors that assist with selling franchises offer the same services. If you’re thinking about outsourcing, you’ll need to understand the differences.
At one end of the spectrum are vendors that only generate sales leads. Prospective franchisees aren’t screened at all — their names and contact information are simply sent to the franchisor.
Full-service brokers are at the opposite end of the spectrum. These vendors not only find prospective franchisees, but they’re also actively involved in recruitment and sales. Services often include delivering FDD paperwork, receiving funds and assisting new franchisees with startup operations.
How Franchisors Can Benefit from Outsourcing Franchise Sales
In most cases, vendors that provide franchise sales leads aren’t all that beneficial to new franchisors. Working with a full-service broker, on the other hand, can offer several advantages.
First, outsourcing can help a new franchisor hit the ground running. Having expert help in selling franchises can make it easier to expand quickly.
Outsourcing sales also helps streamline the franchisor workload and save time. A full-service broker can handle many of the tedious and time-consuming tasks necessary to find and recruit new franchisees.
Why Outsourcing Is Not Right for Every Franchisor
Cost is one of the biggest reasons outsourcing isn’t always the best approach.
Most full-service brokers charge a sizeable fee for their services. In fact, franchisors may have to give up somewhere between 40 and 60 percent of the initial franchise fees. This can put a significant financial strain on your business — or at least inhibit the growth you were expecting.
Another con of outsourcing is the legal risk it places on the franchisor. The broker may be in direct control of the sales process, but state and federal franchise laws put the responsibility for legal compliance squarely on the franchisor. If franchisees are misled in any way, it’s the franchisor — not the broker —- who’ll end up paying the price.
Should You Outsource Your Franchise Sales?
Outsourcing isn’t the right approach for every new franchisor. Only consider this prospect if the costs are manageable and the inherent legal risks of working with a broker can be minimized.
Expert advice from a specialist in franchising and business law can help you decide whether outsourcing your franchise sales makes sense for your business. Speaking with an experienced attorney from the Franchise & Business Law Group will help you fully understand your options and obligations as a new franchisor, enabling you to set yourself up for success.
As the leading franchising and business law firm in Utah, the Franchise & Business Law Group is known for providing client-centered, forward-thinking advice that can assist you in your expansion throughout the state, across the country and overseas.
For more information on our services for new franchisors or to discuss your franchise sales, contact our Salt Lake City office today and schedule a complimentary consultation.